How Will the Rare Earth Metal Supply Chain Impact My Business?

Why Is There Volatility in the Rare Earth Metal Supply Chain?

Supply Chain Manufacturing
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Rare earth metals are not necessarily rare but they are having an increasing and sometimes volatile impact to today’s global supply chain. A list of rare earth metals (from neodymium to yttrium) and their industrial applications can be found at the link above.

Even if your company doesn’t use rare earth metals in its supply chain, rare earth metals might still have an influence on your supply and logistics.

Anyone who has taken a Supply Chain 101 class knows that a key supply chain risk to be aware of is the limitation of supply. The vast majority of rare earth metals come from mining operations in China. If you have any memory or read about the oil crisis in the 1970’s, you’ll know that the risk of supplying global demand from a single geographic region is fraught with peril.

I Don’t Use Rare Earth Metals, So Why Should I Care?

In the 1970’s, with the majority of the world’s oil coming from the middle east, it didn’t matter whether there as an actual shortage of supply or a control of supply by oil producers—the result was that the world struggled to meet its demand. 

Rare earth metals are poised dangerously close to that limited-supply precipice. Rare earth metals are used in increasingly wide industrial applications. Rare earth metals are already used in magnets, lasers, superconductors, paint, nuclear batteries and fluorescent lamps. When Tesla announced—in early 2018—that it would use neodymium in the magnet motor in its Model 3 Long Range Car, it sent shock waves throughout the rare earth metal supply chain.

And to all the supply chains, too.

Think back to the 1970’s. It didn’t matter whether your business was in the oil industry or not—the oil crisis mattered.

Because of the wide use of rare earth metals and the limited supply base, many industries and their associated supply chains are at risk.

Import Tariffs and Their Supply Chain Impact

Another part of the volatility of the rare earth metal supply chain is the control governments have over their export and import. 

The Chinese government has—in the recent past—introduced strict export quotas on rare earth metals. And the implementation of higher import tariffs on metals coming from China and other low-cost manufacturing countries (by the United States), can have the unintended consequence of a rare earth metal retaliation. 

Tesla, Apple and other global corporate behemoths require rare earth metals in their products—and another, more strict export quotas can cause supply shortages and price increases. 

Currently, when companies who use rare earth metals in their products price those products—they include the 5 percent to 10 percent import tariff currently imposed on the rare earth metals. However, tariff spikes to 25 percent or more can drive a 3 percent to 5 percent price increase on phones, cars and other consumer items. 

Keep an eye on the news. If you see rare earth metal tariffs increase, you can take a 50 percent to 65 percent factor of that import tariff increase to calculate the subsequent price increase on the products you use that include rare earth metals. For example, if import tariffs increase from 10 percent to 15 percent, you can expect a follow-on price increase of 2.5 percent to 3 percent. 

How Can You Protect Your Supply Chain?

How vulnerable your supply chain is depends upon several criteria. If you have rare earth metals in your supply chain (or your Tier II suppliers have rare earth metals in theirs), then you are vulnerable to:

  • Price volatility
  • Supply shortages

Locking in supply agreements or holding safety stock may be the only way to protect yourself (short of redesigning or re-engineering the rare earth metals out of your supply chain like Toyota is doing). 

If you don’t have rare earth metals in your supply chain, your supply chain is still vulnerable. Logistics and freight companies may see that there is short term profitability in focusing efforts in rare earth metals supply lines—which could mean less availability capacity for your goods. 

Like the oil crisis of the 1970’s, a shortage or price spike of rare earth metals will have an impact to the global supply can costs of the tech, automotive, aerospace, nuclear, medical device and other industries. If your supply chain is adjacent to those, then it may be at risk.